Low in­vest­ment harms bank­ing in Kur­dis­tan

Eco­nomic ex­perts in Kur­dis­tan Re­gion ar­gue that the re­cent fi­nan­cial cri­sis in Kur­dis­tan Re­gion and lack of liq­uid­ity in the banks are a re­sult of an ac­cu­mu­lated eco­nomic phe­nom­e­non, which has be­come more se­ri­ous with the re­cent demon­stra­tions and the drop in in­vest­ment.

Eco­nomic ex­perts in Kur­dis­tan Re- gion ar­gue that the re­cent fi­nan­cial cri­sis in Kur­dis­tan Re­gion and lack of liq­uid­ity in the banks are a re­sult of an ac­cu­mu­lated eco­nomic phe­nom­e­non, which has be­come more se­ri­ous with the re­cent demon­stra­tions and the drop in in­vest­ment.

Ac­cord­ing to some bank­ing ex­perts, the banks in Kur­dis­tan Re­gion are in an ur­gent need to a large bank­ing con­fer­ence to ad­dress this is­sue and re­gain the trust of peo­ple and in­vestors, which will even­tu­ally help in re­cov­er­ing from the cur­rent liq­uid­ity cri­sis.

Sir­wan Mo­hammed, a lo­cal econ­o­mist, told a lo­cal Kur­dish daily news­pa­per that this sit­u­a­tion has been re­peat­ing ev­ery year re­cently and this is the re­sult of lack of a sus­tain­able eco­nomic and fi­nan­cial pol­icy.

“Hence a sci­en­tific pol­icy has never been de­vel­oped to re­new the fi­nan­cial sys­tem,” Mo­hammed said. “In the past 22 years we have been work­ing on the same fi­nan­cial and fis­cal sys­tem, some­thing which has made the job of the banks more dif­fi­cult, and led to cur­rent sit­u­a­tion that banks are out of liq­uid­ity.”

Ac­cord­ing to Mo­hammed the rea­son is that the money de­posited in the banks are im­me­di­ately with­drawn and given to peo­ple: i.e. it does not cir­cu­late among the banks.

Pay sys­tem has to be changed

Mo­hammed sug­gests that the Kur­dis­tan Re­gional Gov­ern­ment (KRG) has to change its salary sys­tem.

The func­tion of a bank is in­vest­ment and fi­nanc­ing, the gov­ern­ment uses them just to pay salaries.

“KRG has to de­velop a sus­tain­able plan to reg­u­late this is­sue. For in­stance if a thou­sand em­ploy­ees of an in­sti­tu­tion get their pays from a bank, why should all of them with­draw at the same day and im­me­di­ately as it is deb­ited to their ac­counts.”

He says if only the ones who need cash with­draw it, and then some peo­ple may with­draw it with some de­lay, which will leave the banks with some liq­uid­ity.

Another the­ory is that cash is where in­vest­ment is, and this is due to the fact that in­vest­ment is risk-averse. This ex­plains why Er­bil banks do not face same liq­uid­ity cri­sis as Suleimaniya banks.

There are a lot of gi­ant com­pa­nies and in­vestors in Er­bil, be­ing the cap­i­tal of the re­gion.

“In­vest­ment fig­ures are the best proofs of the huge dif­fer­ence be­tween Er­bil and Suleimaniya,” Mo­hammed says. “Er­bil peo­ple have more trust in the banks, and there are ru­mors that some Suleimaniya in­vestors are open­ing bank ac­counts in Er­bil and putting their monies there.”

Demon­stra­tions and trust in banks

The lo­cal econ­o­mist ar­gues that the ma­jor rea­son be­hind the liq­uid­ity is­sue in Suleimaniya was the se­ries of demon­stra­tions and un­rest in the city, which led to in­vestors and peo­ple wor­ry­ing about keep­ing their cap­i­tal in the banks.

Ex­perts be­lieve that KRG has to de­velop a plan that makes all the eco­nomic or­gans of Kur­dis­tan work in har­mony and bal­ance, in a way that in case a city faces a fi­nan­cial or liq­uid­ity is­sue, it could be re­cov­ered from other cities.

Shamal Noori, another econ­o­mist and jour­nal­ist at the Kur­dis­tan Econ­o­mists Syn­di­cate, ar­gues that bank is the back­bone of any econ­omy, and bank­ruptcy of a bank in de­vel­oped coun­tries is a sign of cri­sis.

“In the past 3 years Europe tried not to al­low any bank to an­nounce bank­ruptcy, and mainly the com­pa­nies were reach­ing bank­ruptcy, the im­pacts of which are lower than the banks,” Noori says. “Gov­ern­ment should pro­tect banks from bank­ruptcy. It should help re­turn trust to the peo­ple, like what Shawkat Sheikh Yazid­din did by re­fund­ing all bank de­posits of peo­ple to gain their trust again. This is the only way to ad­dress liq­uid­ity is­sue in the banks.”

Noori also sug­gests that a con­fer­ence has to be or­ga­nized for the bank­ing sec­tor to ad­dress all th­ese is­sue and set a new roadmap for im­prov­ing and sup­port­ing the bank­ing sec­tor by the gov­ern­ment, ex­perts and in­vestors.

Im­me­di­ate im­pacts of the cri­sis

In­vest­ment projects have been par­a­lyzed since the be­gin­ning of this year due to this liq­uid­ity cri­sis, loans have stopped and gov­ern­ment salaries have de­layed.

Rep­re­sen­ta­tives of the Suleimaniya Con­trac­tors’ Union have vis­ited Suleimaniya Gover­norate and warned if they don’t re­ceive their due in­stall- ments from the gov­ern­ment for project un­der im­ple­men­ta­tions, they would hold the projects.

On the other hands, pub­lic bank man­agers claim that Min­istry of Fi­nance have or­dered to halt pay­ing hous­ing loans and even salaries.

Sabaha Ha­mad, Di­rec­tor of Er­bil Real Es­tate Bank, says based on the or­der of the min­istry of fi­nance they are now not re­ceiv­ing any loan ap­pli­ca­tions till fur­ther no­tice from the min­istry.

Shirin Rozh­bayani, Di­rec­tor of the pub­lic Fed­eral Bank, on the other hands, says that they were asked to hold dis­tribut­ing salaries of this month, while re­fut­ing the claim that their banks have run out of liq­uid­ity.

The rea­son be­hind hold­ing salary pay­ments is ap­par­ently that the Pesh­marga Forces have not yet re­ceived their De­cem­ber salaries com­pletely, and hence gov­ern­ment wants to ad­dress this is­sue first.

Qadir Sa­mad, a high school teacher says that they have been told that this month’s salary will not be paid on time.

“If I don’t re­ceive my salary on Jan­uary 25th as nor­mal, I would face a big prob­lem since I have rents, in­stall­ments and bills to pay, all of which are de­pen­dent on this salary,” Sa­mad com­plains.

Ac­cord­ing to Dler Tariq, the of­fi­cial spokesper­son of the min­istry of fi­nance they are now pay­ing the salaries of the Pesh­marga and right af­ter that they will pay Jan­uary salaries to or­di­nary em­ploy­ees.

Though not giv­ing any spe­cific dates, Tariq said the salaries will not be de­layed that much.

This pic­ture de­picts the build­ing of Er­bil Bank in Salim Street, Down­town Suleimaniya.